Monday, 5 Aug 2024
Taxes are mandatory contributions made by profitable businesses and earning individuals to fund government spending. Those intending to withhold the amount through tax evasion have to face legal implications that involve recovering the outstanding taxes and super debts. Thus, every business has to pay income tax to boost the economy and support the development of world-class infrastructure. Small businesses, too, have to shoulder this responsibility of nation-building.
However, the government ensures that taxes do not overburden commercial entities. Thus, they offer tax deductions for most business expenses. Taxes must be calculated by an expert Melbourne bookkeeper who is aware of the latest regulations, tax rates, and applicable deductions. Entrepreneurs who will be paying income tax for the first time must know the amount of tax a small business has to pay in Australia. This will help them prepare for the tax season and collect all the necessary information.
Income tax is incurred on the assessable income earned by the business which includes money generated from sales and other income sources related to the entity, such as capital gains. Every business has to file an income tax return annually in Australia, even if it has not made any profits. Taxes are calculated based on the business structure.
A sole trader has to pay individual tax returns, and partners in a partnership business have to pay tax returns on their share of partnership income. However, a company has to pay taxes on its income because it is a separate legal entity. Similarly, a trust has to pay trust income tax.
The full company tax rate is 30% and is applicable to businesses that are registered as companies, corporate unit trusts and public trading trusts. Base rate entities, from the 2017-18 financial year and onwards, are eligible for the lower company tax rate. For example, base rate entities from 2021-22 onwards should apply 25% company tax rate.
A base-rate entity is a company that had an aggregated turnover below $50 million from 2018-19, and 80% or less of its assessable income is base-rate entity passive income. Sole traders and partners in a partnership use the individual income rates for Australian residents. These tax rates start from 16c for each $1 over $18,200 and go up to $51,638 plus 45c for each $1 over $190,000.
Businesses that have employees must collect pay as you go (PAYG) withholding amount from the salaries given to employees and payments made to contractors and freelancers. It must also be collected for payments made to other businesses that do not provide their Australian business number (ABN).
Experienced bookkeepers in Melbourne should be hired to determine the PAYG withholding amount from employees’ payments. This must be reported to the ATO. Businesses with incomes higher than the threshold in their state or territory must make advance payments (PAYG instalments) based on the predicted income tax liability for the financial year.
Goods and services tax (GST) is a 10% tax levied on the sale of most goods and services in Australia. Businesses registered for GST collect this amount from their customers and pay it to the ATO on the due date. Entities must register for GST if their turnover is above $75,000 or offer taxi or limousine service. It is also applicable if the business intends to claim fuel tax credits. Businesses registered for GST must lodge the business activity statement (BAS), which helps them report and pay GST, PAYG withholding tax, PAYG instalments and other taxes.
Businesses that offer certain benefits to their employees, such as discounted loans, reimbursement of car parking or school fees, must pay fringe benefits tax (FBT). Your Melbourne bookkeeper can calculate this tax by ‘grossing up’ the taxable value of the benefits, which is reported through the FBT return. The business can claim GST credits on the benefits offered to the employees and also claim tax deductions on the costs incurred through fringe benefits.
Capital gain or loss is the difference between the cost price and the selling price of an asset the business holds. It is a part of income tax and must be reported in the income tax return filed by the business. If the asset was sold for a profit, the business will report the capital gain and pay a higher tax. Conversely, if the asset was disposed of at a lower value than its original cost, the business records a capital loss and has to pay reduced tax.
Small business tax deductions apply to entities that have an aggregated turnover of less than $10 million and have been operational during the entire or most of the financial year. Most business expenses, such as employee wages, business travel, the cost of equipment, etc., can be used to claim concessions. A trusted bookkeeper in Melbourne can help entrepreneurs identify the applicable concessions and claim them to reduce the tax amount.
Taxes are integral to running a business as a law-abiding entity. Entrepreneurs must understand the amount of taxes they need to pay and calculate them accurately while claiming the deductions.
